Photo by Ted Grudzinski / AMA

How to split the health care dollar (America’s Health Insurance Plans meeting)

Health insurers want to leave the status-quo fee-for-service payment behind. What must doctors do to get a piece of the pie?

By Emily Berry — Posted July 9, 2012

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Health plans’ ideas about how to improve health care financing will mean major changes for physicians, wherever they practice. For employed physicians or those who are part of an integrated delivery system, those changes may be happening already, without physicians making a conscious choice to jump into new payment models.

For small practices, the choice is whether to say yes to new practice and payment models, wait for a health plan to force the issue, or try a third path of maintaining the status quo. As health insurers talk about paying for “value” and “outcomes,” physicians must decide whether to take on financial risks that can come with the new models, and whether to invest time and technological resources into becoming medical homes or accountable care organizations. For some physicians, those changes might appear to come at too high a cost, and the cooperation required may look like loss of independence.

What physicians face, experts said, is near-universal consensus that the status quo is unsustainable for all sides: physicians, patients and payers. When and how physicians should make changes in how they practice and get paid is a better question than whether to make the jump.

“Being an early mover here is in their best interest, because they’ll have a chance to affect the framework and be part of the design,” said Jim Evans, vice president for financial management at McKesson Health Solutions.

Discussion of new health financing models was frequent as representatives of the country’s health insurers gathered in Salt Lake City June 21-23 at the annual institute hosted by America’s Health Insurance Plans. Speakers and participants said the changes they have planned for the health care system would move ahead whatever the fate of the Affordable Care Act, which was still being considered by the U.S. Supreme Court as health plans met. Most of the ACA has since been declared constitutional.

The changes under way in health payment are aimed at both physicians and hospitals and are supposed to slow health care spending, improve patient health and allow health plans to keep their profit margins healthy. In the past, insurers were notorious for forcing changes on physicians. Now health plan executives, industry consultants and vendors at the institute said payers have caught on to the importance of getting physicians on board with those payment changes.

What’s different this time?

Physicians who already have survived one or two waves of payment reform — from managed care to broad PPO networks — may be hesitant to jump to new payment models, particularly where they are responsible for a group of patients under a capitated pay arrangement. The first attempt at that, in the 1980s and 1990s, was seen as a disaster nearly everywhere, with the possible exception of California, where capitated pay arrangements remain common.

Payers and industry experts said this time really is different, particularly for physicians.

“Physicians are far more important this time around,” said Jordan Battani, principal at CSC’s Emerging Practices Health Care Sector consulting group. “The last time around, these consolidation efforts were driven and controlled by hospitals. But at the end of the day, they don’t make decisions about care. It’s going to be the clinical providers who do that. & Physicians have a lot more leverage in this than they did the last time around, and particularly primary care physicians.”

Jim Whisler, a Minneapolis-based consultant and principal at the consulting firm Deloitte, said the data available about patients are vastly improved. Having learned that not every physician practice and hospital cares for the same population, the risk adjustment tools used to set budgets and project costs are better now. Because of the earlier experiences, doctors and hospitals dealing with new payment models understand better how to manage the financial risk they take by agreeing to care for a group of patients for a set amount of money.

Whisler’s colleague, Deloitte principal John Keith, added another key difference: The economic imperative to cut costs is much greater than ever before, and everyone involved sees that the fee-for-service system isn’t going to work long term.

“There’s a greater commitment to it, because people believe that fee-for-service business is no longer a sustainable model,” he said. “Before, they were dabbling. Now it’s for survival.”

It’s also critical that this time, payment reform is happening alongside changes to health care delivery, Evans said. “It’s not being done in a vacuum. A few years ago, I wouldn’t have said this, but now I would say this is being deeply associated with care management models, medical home models — the things that are necessary to make this sustainable.”

What’s changing for physicians?

The structural changes at physician practices and hospitals won’t be good for everyone. Small practices operating in isolation from other physician groups and hospitals don’t have much chance to take advantage of new payment models, and doing business the old way will become more difficult, experts said. But that doesn’t mean they have to hand over the keys to the office.

“They don’t have to sell themselves,” Keith said. “To operate in this world, they need to be part of a larger system. But it doesn’t mean they can’t be independent.”

That “larger system” might be a regional alliance, an independent practice association, a high-performance network or some other type of affiliation, he said.

The hospital and physician side of the health care market already is consolidated by hospitals buying physician groups as well as other hospitals. That looks likely to continue, said Kaveh Safavi, MD, managing director of the North America Health division at consulting giant Accenture.

“On the other hand, in any market consolidation, there is always space for boutique organizations that excel at something — a typical domain would be a super-specialized clinician, or a concierge practice,” he said. “You have a value proposition that still works, even at a small scale. You still need to do things like technology, but you can go out and buy or rent capabilities from an organization and still be independent.”

McKesson’s Evans said physicians make the mistake of assuming that adopting a new payment model means “fiscal integration,” that they have to be employed or “completely absorbed into an ACO” to adopt and benefit from new payment models. “That’s a myth,” he said.

Must doctors pay for secrets to success?

Physicians’ participation in payment reform may not cost them their independence, but it could cost money.

Dr. Safavi works for insurers as well as hospitals and physician groups, so he sees payment reform evolving from two vantage points. The physicians and hospitals who are taking part in budget-based payment models need expertise that most of them don’t have — and that insurers would be happy to monetize, he said.

“There’s a blurring, if you will, going on,” Dr. Safavi said. “Organizations that traditionally were just care delivery organizations have to gain some capabilities in financing that they never had before.”

Payers are well aware that physicians and hospitals need the kind of business expertise that insurers have held almost exclusively until now: how to track claims, coordinate care, administer case management and deploy a new records system.

Health insurers are offering physicians and health systems access to that expertise — for a price. UnitedHealth Group’s enormously profitable Optum subsidiary is one example of that business angle. Indeed, Dr. Safavi said, some hospitals and doctors may be in a position of paying Optum for consulting and information technology expertise so they can be prepared for the demands that United and other insurers will make under new payment models. They will have to pay United before they can get paid by United.

Whisler pointed out that some health plans actually will share all of those capabilities for free, including CareFirst, the Maryland-based BlueCross BlueShield insurer that has helped finance physician practice redesigns.

Evans said he doesn’t think moving to new payment models has to cost physicians money, mainly because payers need payment reform to work.

“It’s possible you need to be open to partnership, but that it won’t necessarily cost a huge investment. You’ve got to be willing to change, but I don’t think [physicians] are necessarily going to be writing all the checks.”

He acknowledged that it hasn’t been the experience for some physician groups, but said “it’s going to shift when payers recognize that they can’t do this without the providers.”

Experts watching payment reform unfold did not promise that moving to new payment models would be simple for physicians.

“Once they make the transition, they will be a heck of a lot happier,” Deloitte’s Whisler said. “Right now, many of them are in a position where they are having to work harder and harder, and in a very frustrating way. I agree, the transition is incredibly difficult. They have one foot in the fee-for-service canoe, and one in the new value-based reimbursement canoe, all going different directions, so the quicker they can get both of their feet in the same canoe, the happier they will be.”

And eventually, physicians may even make more money.

“I believe they will [get paid more], but probably not in the way they want it,” said Kevin Arner, CEO of PaySpan, a health care transaction processor based in Jacksonville, Fla. “I think there’s an appropriate recognition of the value of their role.

“As we move toward the outcomes-based model generally, there will be an increase in provider revenue potential,” he said. “But it’s going to come over a period of time. You may have to bear the cost of providing care before you get paid.”

Back to top


Quotable moments at AHIP

Industry experts and invited speakers at AHIP’s Institute discussed challenges physicians and insurers face as payment and practice models change:

“We’re like an old Hollywood actress making her second appearance. & We don’t have another 25 years. & We’ll either be great or extinct.”
Jay Gellert, president and CEO, Health Net.

“This takes a lot longer than anyone thinks.”
Kenneth C. Wilson, MD, system vice president for clinical effectiveness and quality, Norton Healthcare, on establishing new payment models in cooperation with health plans.

“Paying claims on time and correctly is table stakes. It is not a differentiator.”
Robert Booz, vice president and distinguished analyst, Gartner, on what will be required of payers as their business model evolves.

“If the only way to get the best possible care was to spend the most money, then we really would be primarily having a rationing conversation. We would have death panels. The fact that there are 50% to 100% differences in both the cost of care and the quality of care & suggests there’s something interesting for us to think about.”
Atul Gawande, MD, surgeon and author of The Checklist Manifesto: How to Get Things Right, on why variation in cost and quality gives the system a clue to the way to control health care costs.

“[Health plans] are being put in the position of making decisions because other places in our society aren’t willing to make those tough decisions.”
Michael Chernew, PhD, professor of health care policy in the Dept. of Health Care Policy at Harvard Medical School.

Back to top

Insurers plan to make exchanges the new way to shop

Because most Americans get health insurance through their jobs and aren’t used to shopping for it themselves, insurers are working to find a way to make buying insurance as easy as purchasing airplane tickets or a sweater online. Health insurance exchanges are envisioned as similar to or travel sites — a way for companies to reach consumers directly with a range of choices at different price points.

The day before AHIP’s institute, health plan executives, vendors and industry analysts gathered in Salt Lake City to discuss health insurance exchanges.

Federally supported, state-based exchanges were built into the Affordable Care Act. But whether in parallel with public exchanges or not, insurers are planning to build and participate in private exchanges.

Under private health exchanges, insurers will offer a selection of plans for individual consumers to purchase, either with their own money or financial support from employers. Some health plans plan to participate in private exchanges featuring multiple companies; others want to have their own online exchanges that offer a choice of plans from the same insurer.

“The genie is out of the [bottle]. Private exchanges are not going to go away,” said Sanjay Singh, CEO of hCentive, a firm that runs private exchanges for insurers.

The increasing emphasis on the individual market is one reason for his conviction, but some insurers and industry experts expect employers to adopt direct-contribution health benefit designs, under which an employer would give each employee a set amount for health insurance, and the employee would choose among a range of options offered in a private exchange.

Other health plans also plan to participate in state-run exchanges that are planned with or without federal support, like the Massachusetts Health Connector. Those could work and enjoy bipartisan support, because consumers and politicians like the idea of a health insurance marketplace, said Chris Condeluci, an attorney with the law firm Venable and former U.S. Senate staffer who was involved in drafting the exchange provisions in the Affordable Care Act.

“The exchange concept itself is a popular one,” he said.

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn